Section 43B(h) at year-end: what to pay micro and small suppliers before 31 March

The rule in one table

Unlike other items in Section 43B, paying before the due date of the income-tax return does not save the deduction: the Finance Act, 2023 made the proviso to Section 43B inapplicable to clause (h). The only test is whether the payment was made within the MSMED Act time limit.

Worked examples for a 31 March year-end

Example in rupees: a trading company has ₹12,00,000 of purchases from Udyam-registered small manufacturers whose 45-day limits expired before 31 March and that are still unpaid. That ₹12,00,000 is added back to taxable income for the year and claimed in the following year when paid. For a company taxed at 22% (before surcharge and cess), that is ₹2,64,000 of tax paid a year early.

Who it covers, and who it does not

• Micro and small enterprises as classified under the MSMED Act. Medium enterprises are not covered.
• Manufacturers and service providers. Retail and wholesale traders can register on Udyam only for priority sector lending, so dues to them are outside the MSMED Act's payment rules and Section 43B(h).
• The supplier's classification decides it, so buyers ask suppliers for their Udyam certificate at onboarding.
• Deemed acceptance: if the buyer raises no written objection within 15 days of delivery, the day of delivery is the day of acceptance under Section 2(b) of the MSMED Act.

Under the Income-tax Act, 2025

The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026. Answering Rajya Sabha Unstarred Question No. 242 on 21 July 2026, the Ministry of Finance confirmed that Section 43B(h) of the 1961 Act corresponds to Section 37(2)(g) of the Income-tax Act, 2025, with the same effect: a sum payable to a micro or small enterprise beyond the Section 15 MSMED Act time limit is allowed only on actual payment. So the year-end check applies to 31 March 2027 exactly as it did to 31 March 2026.

Year-end checklist for buyers

1. List every supplier with a Udyam certificate classifying it as micro or small, and its agreed credit period.
2. For each unpaid invoice on your books, compute the last date to pay: acceptance date plus the agreed days (maximum 45), or plus 15 days without a written agreement.
3. Pay everything whose last date falls on or before 31 March, before 31 March.
4. For invoices due after 31 March, pay by their own last date to keep this year's deduction.
5. If you are a company, report any payments beyond 45 days in MSME Form I (due 30 April for October to March). See MSME Form I filing.

For suppliers, March is the best month to collect: buyers want to keep the deduction. A legal notice in February or March that points out Section 43B(h) and the statutory interest under the MSMED Act often gets paid fast. FundRaksha Legal sends it within 24 hours of complete documents, with no upfront fee and 30% only on what is recovered.

Does Section 43B(h) continue under the Income-tax Act, 2025?

Yes. The Ministry of Finance told the Rajya Sabha on 21 July 2026 that it corresponds to Section 37(2)(g) of the Income-tax Act, 2025, with deduction allowed only on actual payment once the MSMED Act time limit is crossed.

Can I keep the deduction by paying before filing my return?

No. The proviso that allows deduction for payment before the return due date does not apply to clause (h). Only payment within the MSMED Act time limit (45 days at most, or 15 days without a written agreement) keeps the deduction in the year of purchase.

Does Section 43B(h) apply to payments to traders?

No. Retail and wholesale traders can register on Udyam only for priority sector lending, so dues to them are outside the MSMED Act payment provisions that Section 43B(h) relies on.

Does it apply to medium enterprises?

No. It covers amounts payable to micro and small enterprises only.